Gasoline fueled US consumer inflation; The underlying trend is still improving

[1/2]A worker fills a Texas resident’s car with gasoline at a gas station in Ciudad Juarez, Mexico, on March 14, 2022. Reuters/Jose Luis Gonzalez/File Photo Get licensing rights

• Consumer price index rose 0.6% in August
• Gasoline accounts for more than half of CPI increase
• CPI advanced 3.7% year-on-year
• Core CPI rose 0.3%; 4.3% gain year-on-year

WASHINGTON, Sept 13 (Reuters) – U.S. consumer prices rose by the most in 14 months in August as gasoline prices rose, but the annual increase in underlying inflation was the lowest in nearly two years, potentially prompting the Federal Reserve to raise interest rates. Permission was granted to keep it unchanged. Next week.

The mixed report from the Labor Department on Wednesday was published a week before the Federal Reserve’s interest rate decision and after data this month showed labor market conditions eased in August. Although data suggests no change in rates next Wednesday, stickiness in services inflation makes a rise in November likely.

“The Fed is likely to keep the federal funds rate unchanged at this month’s meeting, but today’s report raises the possibility of another interest rate hike in the coming months,” said Philip Newhart, director of market and economic research at New First Citizens Bank. ” York.

The consumer price index rose 0.6% last month, the biggest gain since June 2022. The CPI had risen 0.2% for two consecutive months. The August increase in CPI was in line with economists’ expectations.

Gasoline prices, which rose 10.6% after rising 0.2% in July, accounted for more than half of the increase in CPI last month. Gasoline prices rose in August, reaching $3.984 a gallon in the third week of the month, according to data from the U.S. Energy Information Administration. That compares with $3.676 per gallon during the same period in July.

Shelter costs continued to rise, although rents were declining. Food prices rose 0.2% for the second consecutive month. Grocery food prices rose 0.2%, slowing from June’s 0.3% gain. Consumers paid more for meat, fish and eggs, but dairy products, fruits and vegetables were cheaper.

In the 12 months to August, the CPI rose 3.7% after climbing 3.2% in July. While this is the second consecutive month of increase in annual inflation, year-on-year consumer prices have fallen from a peak of 9.1% in June 2022. The Fed’s inflation target is 2%.

American stocks opened with a decline. The dollar was little changed against a basket of currencies. US Treasury prices were mixed.

“As long as the economy remains resilient and inflation doesn’t pick up again, the market could rally toward the end of the year as we move through the seasonally weak months of September and October,” said Chris Zaccarelli, chief investment officer at Independent Advisor. Will go ahead.” Coalition in Charlotte, North Carolina.

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Rent increase is slow

Excluding volatile food and energy components, the CPI rose 0.3% as a 1.2% decline in prices of used cars and trucks was offset by higher costs for shelter, motor vehicle insurance as well as household goods and operations. The so-called core CPI had increased by 0.2% for two consecutive months.

Prices of core commodities fell 0.1% after falling 0.3% in July. Core services expanded 0.4% for the second consecutive month.

Shelter costs rose 0.3%. Owners’ equivalent rent (OER), a measure of the amount homeowners would pay for rent or earn by renting out their property, rose 0.4% after rising 0.5% in July. Rents are expected to decline further as more apartment buildings come to market.

In the 12 months to August, core CPI rose 4.3%. This was the smallest year-on-year increase since September 2021 and followed a 4.7% gain in July.

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According to CME Group’s FedWatch tool, financial markets overwhelmingly expect the Fed to leave its policy rates unchanged next Wednesday. From March 2022, the US central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range.

But a rate hike in November cannot be ruled out as inflation in services except shelter remains high. Services fares rose 0.5% last month after rising 0.2% in July.

Some economists believe inflation risks are tilted to the upside, citing rising insurance costs, especially for motor vehicles. The CPI reports health insurance costs are expected to rise from October through next spring, as the Department of Labor’s Bureau of Labor Statistics, which compiles the report, recently announced a change to its methodology for measuring these costs.

Economists say if the strike in the automobile sector continues for more than a month, the supply chain may be disrupted and motor vehicle prices may rise.

Members of the United Auto Workers last month voted overwhelmingly in favor of authorizing work stoppages at General Motors (GM.N), Ford Motor (FN) and Stellantis (STLAM.MI) if an agreement on wages and pension plans is reached first. Didn’t happen. The current four-year contract expires on September 14.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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